The potential impact of AI on the DeFi space

Rikkei Finance
Rikkei Finance
Published in
3 min readFeb 20


One of the most intriguing technologies in the public eye today is undoubtedly artificial intelligence (AI). It appears to have the ability to alter many sectors of our life, and the blockchain and cryptocurrency industries are no exception.

The definition

First, let’s define each term. On the one hand, decentralized finance (DeFi) is an ecosystem of DeFi applications created on blockchain networks. Decentralized exchanges, liquidity products, and crypto loans are examples of DeFi products (DEXs).

On the other hand, artificial intelligence (AI) is “the ability of computers or other machines to exhibit or simulate intelligent behavior.” Common uses of AI in finance or trade include fraud detection tools, trading bots, and even chatbots for customer service.

Due to their effectiveness, accessibility, and transparency, DeFi and AI appear to have the potential to upend established financial systems. While AI impacts how we interact with them, DeFi has transformed the products that are available to everyone.

There seems to be a chance for AI to enhance risk management and decision-making in DeFi. Specifically, we can anticipate new financial services and products generated by AI, as well as trading algorithms and market-making tools.

The benefits of AI in DeFi

Predictive analytics

Using AI, analysts can examine past data and apply statistical models to predict future market events. Through machine learning, AI may then gradually increase its predictive capabilities. This is similar to AI performing technical and fundamental analysis on a trader’s behalf.

Automated smart contracts

Through automation, AI has the ability to improve the efficiency of smart contracts. For instance, an AI-powered lending protocol may continuously track the amount of collateral a lender has on hand and foresee potential defaults before they occur. After that, the lending protocol may receive this data. In this case, AI would carry out a task that a smart contract would find difficult to do.

Detecting dishonest DeFi behavior

The anonymity provided by DeFi services can make it challenging to spot fraudulent behavior; however, AI can address this issue by identifying patterns across vast data sets to expose fraudulent activity. Data analysis tools, for example, can be used to target and identify fake exchange trading activity or unusual liquidity movement.

Support lending and borrowing

Decentralized products need little to no human interaction as part of DeFi’s fundamental concept. However, this means that, aside from capital requirements, entrance barriers to DeFi products like crypto lending are frequently very low or nonexistent. Users with proper credit scoring and proven payback records can receive reasonable prices from cryptocurrency loan providers. Nevertheless, the decentralization characteristic of this scoring system would be removed if a heavily biased human element were added. Using AI-based credit scoring, which can transparently evaluate a borrower’s repayment capacity by looking at their spending habits and credit history, is one option to tackle this issue.

Portfolio management and investment advice

For traders and investors on the DeFi markets, bot advisors have a promising future. The learning curve for technical and fundamental analysis as well as advanced predictive analytics is lowered via a human-like, interactive user experience. Due to the complete transparency of transactions on the majority of blockchains, AI can access and utilize a lot of data.

To conclude, AI will undoubtedly lead to ground-breaking innovations in the future. But we are unsure of how much of this will apply to DeFi, though. Still, there is clearly room for AI to improve the efficiency and accessibility of financial services, so that is what we should aim for.

This can be done by utilizing AI to improve the predictability, risk management, and task automation capabilities of DeFi systems. It can also be used to enhance security and user experience.

But we need to control our expectations very carefully. AI holds a lot of promise, but it also has a few myths attached to it. We can only successfully apply this technology by recognizing the areas that are naturally ripe for potential innovation.

Disclaimer: The information herein is for educational purposes only and should not be considered financial, investment, or trading advice. Please conduct your own research and due diligence before making investment decisions. You understand that you are using the Information provided at your own risk.



Rikkei Finance
Rikkei Finance

Rikkei Finance is a Web3 platform, encompassing a DeFi lending protocol and an NFT Marketplace; with a focus on NFT rentals and NFT based lending and borrowing.